Jochen R. Andritzky and Manmohan Singh Volume 5, Number 4, Fourth Quarter 2007 Credit default swaps (CDS) provide the buyer with insurance against certain types of credit events by entitling him to exchange any of the bonds permitted as deliverable against their par value. Unlike bonds, whose risk spreads are assumed to be the product… Read more
Special Issues
What Happened to the Quants in August 2007
Amir E. Khandani and Andrew W. Lo Volume 5, Number 4, Fourth Quarter 2007 During the week of August 6, 2007, a number of quantitative long/short equity hedge funds experienced unprecedented losses. Based on TASS hedge-fund data and simulations of a specific long/short equity strategy, we hypothesize that the losses were initiated by the rapid… Read more
Contingent Claims Approach to Measuring and Managing Sovereign Credit Risk
Dale F. Gray, Robert C. Merton and Zvi Bodie Volume 5, Number 4, Fourth Quarter 2007 This paper proposes a new approach to measure, analyze, and manage sovereign risk based on the theory and practice of modern contingent claims analysis (CCA). The paper provides a new framework for adapting the CCA model to the sovereign… Read more
INSIGHTS: A Brief Review of “The Basis”
James Batterman Volume 5, Number 4, Fourth Quarter 2007 Credit derivatives provide an alternative to the cash market, allowing investors to manage exposure to a wide range of entities. In a brief case study looking at several relatively volatile corporate names, we set out to describe, in general terms, the nature and behavior of the… Read more
BOOK REVIEWS: Financial Modeling of the Equity Market: From CAPM to Cointegration
Volume 5, Number 2, Second Quarter 2007 Financial Modeling of the Equity Market: From CAPM to Cointegration Frank J. Fabozzi, Sergio M. Facardi and Peter N. Kolm Reviewed by Cel Kulasekaran View PDF… Read more
CASE STUDIES: Common Sense Investing
Jack L. Treynor Volume 5, Number 1, First Quarter 2007 View PDF… Read more
Hedge Fund Mergers
Nusret Cakici and Sris Chatterjee Volume 5, Number 2, Second Quarter 2007 This paper examines the characteristics of merged hedge-funds. The data indicate that merged hedge-funds are larger funds that have underperformed over a two-year period prior to merger and have suffered from significantly lower money-flow prior to merger. Merged hedge-funds are also older funds… Read more
Timing Ability in the Focus Market of Hedge Funds
Yong Chen Volume 5, Number 2, Second Quarter 2007 This paper examines the timing ability of hedge funds covering various investment categories. We extend the Treynor-Mazuy (1966) and Henriksson-Merton (1981) market timing models to a multiple market framework and propose the concept of a focus market in which a fund trades most actively. Concentrating on… Read more
Will Hedge Funds Regress towards Index-like Products?
William Fung and David A. Hsieh Volume 5, Number 2, Second Quarter 2007 Hedge funds have grown substantially in the past few years even as hedge fund performance has declined with the rapid increase of capital. History tells us that over-priced, active managers will be replaced by low-cost, passive, index-like alternatives. Could the same process… Read more
How Hedge Funds Beat the Market
Craig French and Damian Ko Volume 5, Number 2, Second Quarter 2007 This paper investigates the determinants of hedge fund portfolio performance — whether hedge funds exhibit security selection skill and market-timing skill. We examine a sample of 157 long-short equity hedge funds over the 10-year period from January, 1996 through December, 2005. To account… Read more